Experience will be strong foundation

When asked what keeps him awake at night as he prepares for one of the biggest floats in Australian history,
QR National
chairman John Prescott talks about people.

“That we continue to recruit the people that we need to run this business effectively," he tells the Weekend AFR.

After joining Queensland Rail as independent non-executive chairman in July 2006, Prescott – who spent four decades at BHP and was its chief executive for most of the 1990s – made changing the people at the top his priority.

“Very early on it was apparent we needed to build the management team, and we set out to do that and within about 12 months we had recruited Lance Hockridge [QR National’s chief executive.]

Prescott was brought into QR National when it was separated from Queensland Rail’s passenger operations in July this year, and is tasked with making the company more commercially competitive.

“I was asked effectively by the [Queensland] Premier [Anna Bligh] to join QR.

“And it was put to me that I knew something about the business because I’d been a customer and therefore I might have some perspectives on what needed to be done. And they were anxious to prove the company’s lot."

The government wanted to make QR National “a competitive business, competitively serving the people of Australia through logistics that were rail-based," Prescott says.

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“And that made some sense to me. I had, a long time earlier, been the general manager of transport in BHP and later in more senior positions and we’d been a fairly significant customer.

“And I thought there were things that needed to be done and if I was being invited to do them, then so well and good."

Prescott’s appointment as chairman was well received by the resources industry, despite his own tenure at BHP having ended under a cloud.

“John Prescott’s appointment was very much welcomed at the time because he brought a business focus," one person in the resources sector told the Weekend AFR.

Prescott was forced out by the BHP board in early 1998 after it rejected his plans to spin off BHP’s poorly performing steel division. The move would have freed up some $8 billion in capital for BHP (as it turned out, the steel businesses were spun out three years later, into BlueScope Steel and OneSteel).

Although his tenure as chief executive officer at BHP began well, his latter years were marred by overpaying for the US Magma copper group in 1996 – a $4.7 billion acquisition – and cost blowouts at the Hot Briquetted Iron plant near Port Hedland.

He also struggled to improve productivity in the company’s coal business amid falling coal prices and with a heavily unionised workforce.

The decision by the state government to privatise Queensland Rail’s freight rail business through the creation of QR National has enabled Prescott to “accelerate" plans to create a more commercial culture at the rail group, which has been government-owned for 145 years.

As well as poor relationships between top executives – “management didn’t have confidence in the board, the board didn’t have confidence in the management" – the company had poor relationships with its customers, he says.

“There was a lot of work to do to improve customer relations, to win their confidence and to demonstrate to them that the company was focused on the things they wanted us to focus on," Prescott says.

A few months before QR National was created, Prescott unveiled what he described as a “world-class board" of people who had not previously worked at Queensland Rail. These include non-executive directors John Atkin, chief executive of the Trust Company; Russell Caplan, former chairman of Shell Australia; Graeme John, former managing director of Australia Post; Andrea Staines, former chief executive of Australian Airlines; and Gene Tilbrook, former executive director of Wesfarmers.

Analysts at Credit Suisse, one of QR National’s five joint lead managers for the float, described the board in their pre-marketing report as “One of the strongest boards of any listed transport company in Australia . . . we see this board as a key catalyst in attracting strong operational and commercial management to QR National."

Of the previous Queensland Rail board, only
Leo Keliher
, a former civil servant with the Queensland Public Service and
Dawson Petie
, former general secretary of the Queensland branch of the Australian Council of Trade Unions, are part of the board of QR National.

Prescott says the board reflects people with a range of skills – in finance; managing or advising, “in a significant way", top 50 companies in Australia; with experience in competitive markets and competition policy; and who understand the Queensland resources industry and market.

“I’m very pleased with the board," Prescott says, pointing out that Peter Kenny, former president of Queensland industry group AgForce, has local experience; Allan Davies is “a grazier and coalminer by experience and practice"; and Russell Caplan “has big company experience, big governance experience and big recruiting experience".

As well, Prescott says, John Atkin is a lawyer who advised Telstra and BlueScope Steel on their privatisations, Gene Tilbrook is “a top-notch financial expert" and Graeme John is a “very good marketing man and logistics guy".

Although Prescott has no plans to immediately increase the size of the board, he does have one person “up my sleeve" who wasn’t available when the board was being put together who he hopes to add at some point.

Bankers familiar with the resources industry who are not advising QR National on its float give Prescott credit for creating a strong board. “Gene Tilbrook is one of the best," one banker said. “And they’ve got some good industry people."

But they also say the board has a hard road ahead of it. Not only does it need to restore QR National’s fractured relationships with its coalmining customers and negotiate with the rail group’s strong unions, it must come up with enough money to proceed with the capital expansions that its customers demand.

But Prescott has no qualms his board will deliver. He says, “These are guys who have been there and done that."